As per Lawkidunya, The Federal Board of Revenue (FBR) calculates tax on salaries in Pakistan based on the Income Tax Ordinance, 2001. Here’s a step-by-step guide on how FBR calculates tax on salaries:

Step 1: Determine Taxable Salary
The employer calculates the taxable salary by adding up all the components of the salary, including:
– Basic salary
– Bonuses
– Allowances (e.g., housing, conveyance, medical)
– Benefits in kind (e.g., company-provided accommodation, vehicle)

Step 2: Apply Exemptions and Deductions
The employer applies exemptions and deductions to the taxable salary, such as:
– Medical allowance (exempt up to PKR 10,000 per month)
– Phone bills (exempt up to PKR 1,000 per month)
– Housing rent (exempt up to PKR 10,000 per month, subject to conditions)
– Charitable donations (deductible up to 10% of taxable income)

Step 3: Calculate Taxable Income
The employer calculates the taxable income by subtracting exemptions and deductions from the taxable salary.

Step 4: Apply Tax Rates
The employer applies the tax rates based on the taxable income, using the tax slabs for salaried individuals in Pakistan.

Step 5: Calculate Tax Liability
The employer calculates the tax liability by multiplying the taxable income by the applicable tax rate.

Step 6: Deduct Tax at Source
The employer deducts tax at source from the salary paid to the employee and deposits it with the FBR.

Tax Calculation Formula
The tax calculation formula is:
Tax Liability = (Taxable Income x Tax Rate) – Tax Credits

Where:
– Taxable Income is the income after exemptions and deductions.
– Tax Rate is the applicable tax rate based on the tax slabs.
– Tax Credits are any tax credits available to the employee.
Please note that this is a general guide, and tax laws and regulations are subject to change. Employers and employees should consult the FBR website or a tax professional for the most up-to-date information.